What To Make of CFPB's Proposed Mortgage Rules

MADISON, Wis.-Credit unions should look at the new mortgage rules being proposed by the Consumer Financial Protection Bureau with a mixture of relief and trepidation.

That is the message from Lauren Calhoun, regulatory compliance manager for CUNA Mutual Group. Calhoun told Credit Union Journal the Bureau's attempt to streamline mortgage forms will result in short-term pain followed by a long-term reduction in paperwork. However, she warned the CFPB is far from finished in issuing new rules regarding mortgages (see related story).

"There were two rules issued on [July 9], the first being the Integrated Disclosure Rule, and that is where the meat is," Calhoun said. "The main piece of the Integrated Disclosure Rule was consolidating the Good Faith Estimate and the early Truth In Lending disclosures into a Loan Estimate, which must be given to consumers three days after they submit their loan application."

Three days before closing what used to be two documents-the HUD-1 Settlement Statement and the Revised Truth In Lending-are to be combined into a single document known as a Closing Disclosure, Calhoun continued.

Chuck Forms Into 'Recycling Bin'

"Certainly going from four documents down to two is good for consumers, but it is favorable to lenders as well," she said. "The results are very streamlined forms that are easier on the eyes. The Bureau tested several iterations of these forms over the course of 18 months. These studies found consumers want to see the most important elements on the first page."

The changes are "a positive" and "a step in the right direction," Calhoun assessed, but she noted there will be both a compliance burden and a systems burden for credit unions to implement. She said it will be "burdensome" in the short term for many facets of the organization to comply with these new rules and create these new forms.

"The old forms can be chucked straight into the recycle bin," she said. "It is going to take a lot of training of staff, the systems will have to be able to handle the new forms and there is a new, electronic record-keeping requirement that credit unions will have to deal with."

The positive: Calhoun believes the long-term effect of the new disclosure forms might be a reduced burden on credit unions simply by reducing paperwork. However, she said there is a caveat in that the CFPB has issued two of what is expected to be seven proposals related to mortgages, so there is a lot coming down the pipeline that will result in a complete overhaul of the mortgage market.

"The Dodd-Frank Act, which required all of these proposals to be issued, put in a lot of new requirements for institutions. So while the paperwork burden might be less, there will be many new requirements for credit unions to face."

The CFPB does recognize the impact it is placing on institutions, especially smaller institutions, so it is seeking comment on when the requirements should be put in place, Calhoun said. The Bureau is leaving open the option of testing the revised forms on actual loans before the final rules are issued, which she said indicates there still could be adjustments to the forms after the comment period and before the final rules.

Changes To 'Finance Charge' Definition

In addition to the streamlined disclosure forms, a major change the CFPB is proposing is an amendment to the calculation of APR. Calhoun said the Bureau has indicated it wants to better reflect the cost of credit over time, and will do so by changing the definition of "finance charge."

"Finance charge currently is referred to as the 'some fees in, some fees out' approach," she explained. "This new proposal says everything is in, with very few exceptions. The exceptions that remain are post-consummation, such as late fees or delinquency fees."

According to Calhoun, the proposed new definition will impact how credit unions calculate finance charge and what finance charge will look like. She said the result will be a "big change" for the entire financial services industry because for years so many fees have been excluded.

"With the inclusion of the exceptions, the APR will be completely altered," she said. "Data processing will have to be changed, and the APR change affects other rules as well. HOEPA, which concerns high-cost loans, will be triggered faster."

CU Comments Needed Soon

The CFPB is seeking comments on the APR changes by Sept. 7, with comments on the Integrated Disclosure Rule due on Nov. 6. Calhoun's assessment? At this point, everything is up for discussion, so CUs need to speak up.

"I would advise credit unions to take a look at the rules and determine what types of impact the rules will have on them," she said. "They need to work with their trade associations, which have been involved in working with the Bureau, and submit comments on the rules. Credit unions need to make sure their voices are heard. At this point nothing is finalized, so credit unions should not be moving on implementation. It is time to get involved in the rule-making process and brace for impact."

Another consideration: Calhoun said CUs need to recognize the CFPB has issued just two of seven proposals. She said it is important going forward to look at all of the mortgage proposals holistically because one proposal could have a large impact on another one.

"There is no deadline for implementation of the final rules," she said. "The Bureau is asking for comments from the industry on when the implementation should be."

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